How quickly it all turns. Gone are the housing-boom articles; barely even countenanced are the housing slowdown pieces; now we’re in full get ready for a housing crash hot takes. With banks raising interest rates and housing prices in Sydney and Melbourne falling, is it time to worry about a crash? Or should we all just take a deep breath?

Australian house values fall by $13bn in three months as capital city prices slide

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The latest residential property price index data showed house price in Sydney in the June quarter fell for the fourth consecutive quarter. Sydney prices were down 1.2% in the quarter, while Melbourne prices were down 0.8% – its second consecutive quarterly fall:

The annual growth figures were just as stark for Sydney.

Over the 12 months to June, Sydney residential prices were down 3.9% – the sharpest fall since the GFC days in 2009. The other capital cities except Perth and Darwin are all still in positive territory, but Darwin is a small and unique market, and Perth is actually getting better (or more accurately, not getting worse as fast):

It’s a reminder that when we talk about the housing boom and possible burst, we’re really talking about Sydney and Melbourne. Yes, it could infect other markets, but since the RBA began cutting rates at the end of 2010, Sydney and then Melbourne have been the two cities that really took off:

Now none of this is all that big of a surprise.

For some time now I (and most other commentators and the RBA) have been predicting the end of the boom. The housing finance data has been pretty clear about the way in which the market is headed. Given that housing prices generally follow the path of housing finance, it would be very surprising to see any improvement in the national average of house prices anytime in the next six months:

But does that mean the crash cometh?

Clearly no one wants to be the one who laughs with derision at calls of a housing crash – such hubris means you might as well start casting who will play you in the role of “dumb housing analyst” in the 2020 sequel to The Big Short (I pick Ralph Fiennes to play me).

But talk of a 40% fall in prices is, shall we say, fairly extreme. Put it this way, the Sydney housing market peaked in the middle of last year. Since then the most recent commercial data has the fall about 15% at most (and the ABS data which is three months old has it at just 4%). We have a way to go to get to 40%.

The Perth market is one which gives us a very good example of bubbles bursting due to an economy hitting a wall. Perth is very much a boom-bust market. This century it has had three boom periods, and three busts. During the GFC in 2009 prices fell 8% from their peak. In 2011 they fell 7% (although in between there had been a 15% rise). And since the mining boom ended in 2014, prices have fallen by just under 10%:

But remember, this last period of the Perth housing bust was also during a period where the unemployment rate in Western Australia went from 4.5% to 6.2% – completely out of step with the rest of the nation.

So are Sydney and Melbourne immune? Obviously not, but something would need to very much go wrong in the broader economy of those states (and Australia itself) for a crash to occur.

But you can understand why people are worried when you compare the median house price of Sydney and Melbourne to Perth. So great was the boom in Perth in the early years of the century that it was almost as expensive to buy a house there as in Sydney; now the median Sydney house price is almost double that of one in Perth:

So there is a long way to fall.

And the worry is that as interest rates go back to normal, things will get tight for borrowers.

Certainly rising interest rates always bring with them tougher times for those paying a mortgage, but let us have some perspective.

While banks are moving ahead of the RBA, the central bank itself is not looking like raising rates any time soon. The market, which just three months ago predicted a rate rise sometime towards the end of next year, now sees no move until well in 2020:

And while housing prices have certainly increased since 2010, the average mortgage rate is now around 2.6% pts lower than it was in December of that year.

If you had taken out an average size mortgage in New South Wales at that time your monthly repayments would be 24% lower than they were then – a drop from $2,443 a month to $1,863.

But on the other side of the coin is that those who are looking to get into the market now are taking out a mortgage that is around 30% larger. That means even with lower interest rates your repayments are sizeable – in fact at $2,418 a month they are higher than were for those taking out a mortgage back in 2010 when interest rates were averaging 7.8% rather than the current 5.2%:

But remember that over that time, even with weak wages growth the average male full-time earnings have risen 25%. So mortgage repayments as a percentage of male full-time earnings are lower now than in 2010:

The housing boom is over and we are in huge danger if the economic tide turns | Greg Jericho

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But even still they are at historically high levels and so it won’t take much of an interest rate rise to start causing trouble. Should that be the case however, there is nothing stopping the RBA from cutting rather to counter any moves by the banks.

And that is what we need to remember – the RBA and APRA are not unaware of the concerns, lending standards have been improved and despite record low rates, the RBA actually does have room to move – and so too does the government, given the rather nice recent boost in tax revenue.

A crash is always possible, but right now it would require a confluence of events – both local and international for it to occur, rather than just banks increasing interest rates.